Wednesday, December 31, 2014

MAYFLOWER: The oil is mostly gone, but the litigation is just getting started.

The D-G's Debra Hale-Shelton (paywall) reports on an interesting development in the class-action lawsuit that victims of the 2013 Mayflower oil spill are waging against ExxonMobil, operator of a pipeline which spilled hundreds of thousands of gallons of Canadian crude oil and solvents into a neighborhood of the small Central Arkansas community almost two years ago.

The pipeline that ruptured in 2013, the Pegasus, runs from a juncture point in Illinois south through Arkansas and onward to the Gulf Coast refinery town of Nederland, Texas. (Since the spill, it's been shut off indefinitely and its eventual fate is unknown.) Apparently, in 2007 ExxonMobil planned to build a second pipeline of much higher capacity that would have followed exactly the same route as the Pegasus, but the "Texas Access Pipeline" never got off the ground. Now, attorneys for the Mayflower landowners filing the class-action suit are trying to force Exxon to release additional information about the Texas Access project; Exxon's lawyers have filed a brief in U.S. District Court attempting to fight that release.

What's at stake here? Maybe a lot, maybe not.

The plaintiffs are trying to argue that Exxon intended Texas Access to replace the Pegasus, most of which was built in the 1940s using flawed manufacturing techniques, but then decided to keep using the existing line at increased (and unsafe) pressure instead. In this narrative, Exxon considers making a necessary improvement to its pipeline infrastructure, weighs the potential profits against the costs, and makes the calculated decision to take a risk on continuing to use the aging Pegasus despite its potential for failure.

According to a 2008 report from Downstream Today, a petroleum trade journal, Exxon (and Enbridge, a partner in the proposed venture) decided to indefinitely delay building Texas Access "after oil sands production forecasts were scaled back in the face of rising costs and regulatory delays." The shelved project was estimated to cost $2.6 billion. Soon after that, in 2009, Exxon significantly increased the transport capacity of the Pegasus, from around 60,000 barrels of oil per day to over 90,000. That means the internal pressure of the line became much higher. However, Exxon also installed additional leak detection technology and performed multiple safety tests that showed the Pegasus could handle the higher pressures, according to the company.

Exxon's attorneys argue that Texas Access was never intended to replace the Pegasus. An attorney for the plaintiffs said that's "ridiculous." Why, he asks, would the company build a redundant pipeline alongside an existing one if it wasn't planning to shut down the older line?

For what it's worth, it seems to me that the primary purpose of Texas Access was not to replace the Pegasus. Texas Access would have carried 400,000 barrels per day, more than four times the maximum operating capacity of the Pegasus even with the increased pressure. Exxon's motivation in building Texas Access was to move increased volumes of Canadian crude to the Gulf, and it does make some sense they'd use the route of an existing line to do so rather than securing hundreds upon hundreds of miles of new easements. As a layman, it doesn't seem inconceivable to me that the company intended to operate both lines simultaneously for as long as it could.

But that's why the court needs to take a long, hard look at those documents. If they indicate that an ancillary reason for exploring Texas Access was the finding that Pegasus would possibly need to be retired in the not-too-distant future ... well, that's pretty damning for Exxon. Until the files are released, it's impossible to know if that's the case (and their release still might not clarify matters).

A final note — one might ask why Exxon would try to avoid the release of these documents in court unless they do indeed contain proof that the company behaved negligently. One answer is that Exxon is known for such behavior when sued. It's notorious for drawing out litigation for as many years as possible, for fighting absolutely every small matter tooth and nail. The major damages claim related to the 1989 Exxon oil tanker spill in Valdez, Alaska, for example, was not resolved until 20 years after the fact, in 2008. It's part of their legal strategy. The trial over the Mayflower class-action suit won't start until this August, but it likely won't be settled for a long time after that.

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